While the proceeds from selling a business or business assets can still be contributed to super without capital gains tax, small business owners have been warned these contributions will now count towards their individual account balance.
SMSF Association head of technical Peter Hogan says because there is no change to the small business CGT cap, SME owners are largely unaware of its potential impact on concessional and non-concessional caps.
“What has to be remembered is that once this tax-free contribution is placed in an SMSF using the CGT cap, these amounts count as part of a member’s total superannuation account and are assessed accordingly in terms of eligibility for ‘catch-up’ concessional contributions and available non-concessional contribution caps from 1 July, 2017 onwards,” Mr Hogan said.
“Although the small business CGT cap has been left alone by the legislation, small business owners need to carefully assess the impact of making such a contribution on the sale of a business or business asset.”
The small business CGT cap allows for the capital gain realised on the sale of any small business asset up to $500,000 per eligible taxpayer to be contributed to superannuation free of capital gains tax when certain conditions are met.
If the asset has been held for more than 15 years, that threshold rises to $1.415 million for the 2016-2017 financial year.
The CGT cap applies to small businesses with a turnover of less than $2 million or eligible taxpayers, seeking to use the exemption, with a net asset value of less than $6 million.
“Ideally, any small business contribution should be made after any other contribution, especially where the small business CGT contribution will push account balances over the various account thresholds,” Mr Hogan said.
He added that SME owners should also be aware of the potential impact the caps could have on the total amount in an SMSF that adds to the $1.6 million transfer balance cap.